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Institutional trading and hedge fund activism
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Gantchev, Nickolay and Jotikasthira, Chotibhak (2018) Institutional trading and hedge fund activism. Management Science, 64 (6). pp. 2930-2950. doi:10.1287/mnsc.2016.2654 ISSN 0025-1909.
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Official URL: http://dx.doi.org/10.1287/mnsc.2016.2654
Abstract
This paper investigates the role of institutional trading in the emergence of hedge fund activism—an important corporate governance mechanism. We demonstrate that institutional sales raise a firm’s probability of becoming an activist target. Furthermore, by exploiting the funding circumstances of individual institutions, we establish that such effects occur through a liquidity channel, i.e., the activist camouflages his purchases among other institutions’ liquidity sales. Additional evidence supports our conclusion. First, activist purchases closely track institutional sales at the daily frequency. Second, such synchronicity is stronger among targets with lower expected monitoring benefits, suggesting that gains from trading with other institutions supplement these benefits in the activist’s targeting decision. Finally, we find that institutional sales accelerate the timing of a campaign at firms already followed by activists rather than attract attention to unlikely targets. Taken together, our findings offer a novel empirical perspective on the liquidity theories of activism; while activists screen firms on the basis of fundamentals, they pick specific targets at a particular time by exploiting institutional liquidity shocks.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Hedge funds, Corporate governance , Stockholders , Stockholders' derivative actions , Institutional investors | ||||||||
Journal or Publication Title: | Management Science | ||||||||
Publisher: | Institute for Operations Research and the Management Sciences (I N F O R M S) | ||||||||
ISSN: | 0025-1909 | ||||||||
Official Date: | June 2018 | ||||||||
Dates: |
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Volume: | 64 | ||||||||
Number: | 6 | ||||||||
Page Range: | pp. 2930-2950 | ||||||||
DOI: | 10.1287/mnsc.2016.2654 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 12 November 2020 | ||||||||
Date of first compliant Open Access: | 12 November 2020 |
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